Subscriber Content Preview | Request a free trialSearch  

The Deal Economy 2013

Home    |    Event    |    Blog    |    Awards
Print  |  Share  |  Discuss  |  Reprint

Shareholders and the imperial Dimon

by Robert Teitelman  |  Published May 17, 2012 at 1:05 PM
romeruins.JPGMore on Jamie Dimon. We're going to get really sick of this very soon. In the Financial Times today, the usually sensible John Gapper uses his column to call for Dimon's removal as chairman of J.P. Morgan Chase & Co. (he can keep the CEO job), suggesting that he's a) too imperial and charismatic, and b) that given his exalted nature (not to say the fact that the bank is megaenormous, which is a whole other problem not related to governance), he's a threat to shareholder democracy. Now, to tell you the truth, given all of the other remedies suggested in the media -- break up the banks, toughen up the Volcker Rule, jack up capital, fire Dimon or toss him and anyone involved in jail -- losing the ability to run a board meeting and bang the gavel doesn't seem all that bad, particularly as losses on the big trade worsen.

Indeed, Gapper has wandered here into the wonderland of corporate governance. First, start with the obvious. We still don't know squat about, as Jesse Eisinger mutters suspiciously in the Times, who knew what when. The notion that Dimon got too imperial, too distant, complacent, hubristic or reckless, may be true or it may be false. The evidence is circumstantial to nonexistent. Blaming excessive size is likelier, particularly given the scant amount of information we have. Second, banks have been blowing themselves up for centuries. Fallen banks come in all shapes and sizes, and all varieties of governance structures. The European banks, which generally seem to be in far worse shape than J.P. Morgan, generally divide up the chairman and CEO jobs. Third, CEOs get imperial mostly because shareholders favor that status. This is a complex phenomenon, not unrelated to democratic voting. Forget the chairman and CEO jobs. Two weeks ago, shareholders of any bank in the country would have murdered to have Dimon come and sit in their boardrooms and yell at people. He was the genius, the blunt-talking, annual-report-writing, risk-managing, efficiency-obsessed, best-of-class banker. His reputation, burnished by history, good looks and the usual hagiography, was a shareholders' delight. Would they have traded him for a colorless, if reliable, bank technocrat? Hardly.

Take this further: Do shareholders really dislike the fact that at least part of J.P. Morgan is a hedge fund? No, just like they don't really care about excessive pay or subprime mortgages, as long as the returns are there and the shares tick up. In other words, as long as you don't screw up. Shareholders loved Dimon's mentor, Sandy Weill, for decades; today, not so much, but then he's retired and Citigroup has suffered. Shareholders loved Lehman Brothers' Dick Fuld, Royal Bank of Scotland's Fred Goodwin and those guys running the Icelandic banks. Shareholders mostly loved Steve Jobs (except for a few years when they didn't) and appear to favor Mark Zuckerberg, though it's very early, and does anyone think he's charismatic? Shareholders, like moviegoers, have a deep and abiding belief in entrepreneurial charisma and imperial pretension as long as they are satisfied. But star power can be like leverage: The fall can be as spectacular as the rise. It's one reason pay is so high and PR staffs are so large.

Is this necessarily good? Of course not. All corporations, and especially banks, are highly organized and routinized bureaucracies; in this sense, Gapper is right that an imperial CEO is a "myth." What do people who perch atop large companies do all day? They give speeches, sell themselves and their companies and go to endless meetings. Given the embedded interests and investments in a large company, they are naturally conservative. Bill Gates, who was about as charismatic as a sheet of paper, got credit because he tried to take time off to think. (And what did that produce? Microsoft still lives off Windows.) As a result, in business, the standards of charisma are pretty low. A huge part of it is sustained success, as measured by share prices. Would we think Jack Welch had charisma if he was running a plastics factory? Lee Iacocca, who helped invent the modern imperial CEO, ran a car company; his "charisma" stemmed from his propensity to say colorful things, to brag autobiographically (in other words PR) and -- give him credit -- to bring Chrysler back to life, at least temporarily, with government help. (He was also associated with the Ford Mustang, a nifty little car, but really.) Even Jobs, the very paragon of the charismatic, imperial CEO, who did have one of the great runs in CEO history, was hardly a personality most people could stand for long periods of time. But he orchestrated the development of beautiful, elegant and disruptive products. He basked in their reflected glory. The stock rose. Then he unfortunately died.  

This leads us to the real tension in Gapper's column, between the entrepreneur and the manager. Shareholders, not to say the public at large, favor managers with some degree, real or imagined, of entrepreneurial life. They know how hidebound these giant organizations can be; and they know, given inertia, how slow they will grow unless someone has the guts and the power to stir up things. They also think managers and reliability are commodities. Dimon, in fact, seemed so perfect because he appeared to combine both talents: He was a stirrer-upper and an efficiency maven; he seemed to want growth and stability; he was disruptive and a caretaker. That balancing act is extremely difficult to sustain over a long period -- but arguably necessary given the nature of modern banking. The truth is if Dimon had surrendered some of that imperial quality, and settled for lower and safer returns, shareholders would have quickly grown restive -- as they have at some of the other former high flyers, including Morgan Stanley and Goldman, Sachs & Co. (It's also the bedeviling plight of some tech giants, notably Hewlett-Packard.)

It may well be the wisest thing we can do from a public policy and a regulatory standpoint to wring out the star power from banking. But if we do that, how can we talk so impressively about the need for shareholder democracy? - Robert Teitelman 
Tags: Bill Gates | Chrysler | Citigroup Inc. | Dick Fuld | Financial Times | Fred Goodwin | Goldman Sachs & Co. | Hewlett-Packard Co. | J.P. Morgan Chase & Co. | Jack Welch | Jamie Dimon | Jesse Eisinger | John Gapper | Lee Iacocca | Lehman Brothers Inc. | Mark Zuckerberg | Microsoft Corp. | Morgan Stanley | Royal Bank of Scotland Group plc | Sandy Weill | The New York Times
blog comments powered by Disqus

Meet the journalists

Robert Teitelman

Editor in chief

Bob Teitelman, editor in chief and a member of the company’s executive committee, is responsible for editorial operations of print and electronic products. Contact

Movers & Shakers

Launch Movers and shakers slideshow

French mergers and acquisitions lawyer Laurent Faugerolas joined Dechert LLP. For other updates launch today's Movers & shakers slideshow.


Struggling TeleCommunication Systems is sold

After announcing in July that it was exploring strategic alternatives, TeleCommunication Systems Inc. has agreed to sell to Comtech Telecommunications Corp. in a transaction with an enterprise value of $430.8 million. More video